Fuel subsidy could triple to Rp 40 trillion
Fitri Wulandari, The Jakarta Post, Jakarta
The government fuel subsidy this year may nearly triple to around Rp 40 trillion (about US$4.35 billion) due to soaring oil prices, the state oil and gas firm PT Pertamina said on Tuesday.
They also said it would worsen the state budget deficit and had already put heavy pressure on Pertamina's cash flow.
The 2004 state budget has allocated some Rp 14.5 trillion for fuel subsidies based on an average oil price assumption of $22 per barrel.
"Assuming crude oil prices stay at an average $35 per barrel, fuel subsidies could reach a total of Rp 40 trillion," Pertamina finance director Alfred Rohimone said in a hearing with the House of Representatives Commission VIII on mining and energy.
The fuel subsidy will increase because the government has decided not to raise fuel prices at home during the current general election year, despite skyrocketing oil prices on the international market. Even though the country is an oil exporter, it also imports some of its crude oil needs.
In the past week, crude oil prices hit a 21-year high of $41 per barrel due to supply uncertainties amid political tension in the Middle East.
On Tuesday, U.S. light sweet crude edged up 33 U.S. cents to $41.39 per barrel while European North Sea Brent crude climbed to $37.70 per barrel.
Anggito Abimanyu, the head of the fiscal analysis agency at the Ministry of Finance said a one dollar increase (average for the entire year) in the oil price would add a deficit to the state budget of between Rp 700 billion and Rp 800 billion.
"That is, if other indices such as the exchange rate, inflation and interest rates were unchanged," Anggito said. The rupiah, however, has sharply declined in the past month, creating inflationary pressures, and could eventually push the central bank to raise interest rates.
But Anggito said that the government would work hard to ensure that the 2004 deficit target of 1.2 percent of gross domestic product (GDP) could be achieved. The current administration has been commended for its success in trimming down budget deficits, a key component to help create a healthy fiscal condition.
"We will make adjustments by issuing new policies," Anggito said, but declined to elaborate.
The government is due to discuss a revision of the 2004 State Budget with legislators next month.
Meanwhile, Pertamina said that the higher cost of importing crude had put the company's cash flow at a "critical level" as the government's subsidy funds were no longer sufficient.
Alfred said Pertamina's cash-on-hand is now less than Rp 2 trillion, but it must pay Rp 5.6 trillion a month to import crude and fuel products.
The company imports some 300,000 barrels of crude and fuel products a day at market prices but they are sold at a subsidized price in line with government policy.
"The company is bleeding. It is urgent for the government to help Pertamina," Alfred appealed.
He said that to make things worse, the government for years had only covered around 70 percent of the fuel subsidy. "It could take years to get full reimbursement from the government," he said.
He said that this condition would, among other things, force the company to cancel several projects. He did not elaborate.
Elsewhere, Pertamina also announced that it had delayed a planned sale of eurobonds until next year as rising bond yields amid higher interest rate pressure would increase the borrowing cost.The company has also halved the size of the eurobonds to $250 million.